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Bitcoin fork: despite it’s faults, is Bitcoin here to stay?

13.09.2017

London, UK - Since Bitcoin emerged as a popular currency in 2009 after being created by Satoshi Nakamoto, there are still many reasons to be suspicious of this relatively young method of payment. According to those who created the currency, every single Bitcoin is worth £3,225 each and they are generated using high-level codes. There are currently 16 million Bitcoins in circulation. There are other reasons to believe this currency will be here to stay.

Like with many unique ideas that have been created throughout history, there will always be those who take advantage of it and attempt to tarnish a new concept’s reputation. Ryan Kennedy, aged 30, became the first criminal to engage in “Bitcoin fraud.” Prosecutors described his crime as “very complex and sophisticated.” Mr. Kennedy was arrested for eight charges of fraud, fraudulent training and money laundering, even though he denies all the allegations made against him. Investigators have been exploring a three-year probe where he pretended to be a lawyer with a degree from Balliol College, Oxford University. The case included evidence originating from the United States and Finland.

Because of the sophisticated nature of Bitcoin, this payment method has also attracted critics. Billionaire investor Howard Marks was condemned by cryptocurrency fans after dubbing Bitcoin a “fad” in July. Recently, he has had a change of heart about the currency. He has acknowledged that many people believe in and trust Bitcoin. Mr. Marks said that it has one significant quality that may enable the digital method of trading to provide an alternative to existing legal tenders: people intend to use it in the future. Mr. Marks wants to see it as more than just an investment asset. Despite this, he urges markets to be cautious of this payment method to prevent the market from crashing, as it did in 2007-8 when banks recklessly lent subprime mortgages to families. But he believes the Great Recession has made investors naturally more hesitant anyway. He said this is because there has been no economic boom this decade.

Even though Bitcoin has attracted criticism and created new types of fraud, it appears that this payment method is here to stay. Many have been waiting for Bitcoin smart contracts to roll out across Europe and that delay may soon be over. Bitcoin developers are resurrecting a plan that would see the continent’s most popular blockchain retooled with functionality long synonymous with Ethereum and its most expensive code executions. This initiative was spurred on by SegWit activation. The concept is known as Merkelized Abstract Syntax Trees (MAST). Russell O’Connor, Pieter Wuille and Peter Todd created the idea. Blockstream co-founder, Mark Friedenbach, put forward a proposal to have MAST deployed by way of soft fork (a backwards-compatible change to the blockchain’s set rule). This would result in greater transaction flexibility. Transactions can only be processed over a period if one or two actions are taken first. Two users must provide their consent for a transaction to be redeemable. MAST also enables improved user privacy. It stores data in a new way and does not reveal unused scripts to the public blockchain. It allows for increased scaling potential as less data is stored on it.

Friedenbach’s three Bitcoin Improvement Proposals (BIPs) includes two scripts that allow users to take advantage of MAST. The first one, “Fast Merkle Trees”, proposes a different Merkle tree structure than the one currently used by Bitcoin to store transactions in blocks. The second BIP, MERKLE-BRANCH-VERIFY, is a script that enables users to make new kinds of transactions. The final BIP, “Tail Call Execution Semantics”, sounds complicated, but it allows Bitcoin contracts to be terminated. Any changes can be made using BIT8 or BIT9, two methods of making Bitcoin upgrades without complexions. BIT8 has been welcomed by users as the simpler method because it relies on Bitcoin users and businesses, whilst BIT9 depends on miners to signal for the change before it can be deployed. MAST could pave the way for upgrades to be made in the future, should companies and developers choose to use this system.

Alongside these developments, some European countries have started to adopt Bitcoin payments, which shows there is a sense of optimism gradually spreading throughout the continent about this currency. Three economists at the Bank of Finland, Gur Huberman, Jacob Leshno, and Ciamac Moallemi, produced a new paper this month which investigated Bitcoin’s infrastructure and their findings concluded that the technology is a “monopoly operated by a protocol.” They said that this feature provides relative protection against manipulation by bad actors by the protocol-layer dynamics. According to these economists, Bitcoin cannot be regulated and there is no need to do so because it is a system committed to the protocol and the transaction fees it issues are determined independently by the users of the miners’ efforts. One Finnish city, Kouvola, received €2.4 million to test blockchain-powered shipping, which shows this nation is gradually implementing Bitcoin.

Chiasso in Switzerland has gone one step further and started to accept tax payments in Bitcoin. The new scheme will be starting there next year. Tax payments cannot exceed 250 Swiss francs. Chiasso’s aspiration is to rival Zug, which is currently the nation’s only “Cryptovalley” that allows digital payments.

Bitcoin clearly has its faults, but that is understandable considering it is a relatively new currency. Already, there are criminals like Ryan Kennedy taking advantage of this payment method to engage in fraud and this means the law will have to be modernised to clampdown on this new type of criminal activity. Yet it would be a mistake to go as far as China has by shutting down all local cryptocurrency exchanges. Bitcoin is here to stay and many European countries should follow Finland and Switzerland’s examples and start adopting this currency. Soon the latter will transform into a European hub for Bitcoin payments as both Zug and Chiasso will be trading in this currency. If Howard Marks can be won round to the idea of trading in Bitcoin, perhaps many of us can as well.

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Matthew Snape is a journalist for Centus UK and specialises in topics relating to the EU and UK economy, politics and payments industry. Matthew is also in the middle of completing the National College for the Training of Journalists qualification.